Business Ratios Question: Download Questions PDF
Can you please explain the difference between current ratio and working capital?
Answer:
To illustrate the difference between the current ratio and working capital, let's assume that a company's balance sheet reports current assets of $60,000 and current liabilities of $40,000. The company's current ratio is 1.5 to 1 (or 1.5:1, or simply 1.5) resulting from dividing $60,000 by $40,000. The company's working capital is $20,000 which is the remainder after subtracting $40,000 from $60,000.
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